Banking on low-cost outsourcing model

Apart from being the first all-women bank, there is another first to Bharatiya Mahila Bank (BMB). It is the only bank to be built completely on a low-cost outsourcing model.

While the bank will focus on acquiring and servicing customers and speeding up the process of financial inclusion through the low-cost outsourcing model, back-end services such as debit and credit card management, digital and mobile banking, asset-liability management and ATM management will be taken care of by US-based banking technology company FIS.

Saving on money

“With rapid transformation on regulatory and technology fronts, banks can either continue to deploy capital to keep up with technology or leverage companies such as FIS, while deploying their capital to provide loans,” Gary Narcoss, President and COO of FIS, told Business Line .

Mostly, companies prefer the latter option — save money for core business — and outsource other processes. Outsourcing, where a company partners with a specialist service provider to save on investment in product and processes, is catching up in the Indian banking sector. And a new player like BMB seems to be a clear beneficiary.

“When you are a new entrant, you can climb faster if you pad it up with outsourcing,” said Kalpana B, Partner at management consulting firm KPMG India.

Outsourcing cuts time to reach the market. BMB’s infrastructure was up and running in just two months after FIS bagged the mandate from the Government of India. The bank kicked off operations within nine months of its announcement, thanks to outsourcing.

This apart, outsourcing also converts capital expenditure into revenue expenses, which can be paid on a periodical basis, rather than as lump-sum. Since various activities are managed by expert firms, it leads to savings of between 20 per cent and 40 per cent in operating costs, suggest industry estimates.

Indian banks, which have legacy systems, have started outsourcing parts of their processes for multiple reasons. One, mid-size and huge banks are not able to attract the talent required to get complex systems up and running. “Two, services like core banking, application management and security are becoming commoditised. So, their cost of execution is far more than what would be incurred if these services were to be outsourced. This is leading to an increase in thought towards outsourcing,” Kalpana added.

India, a big market

Companies like FIS are looking at India as a big market for these reasons. “There is tremendous modernisation around technology here. We are excited about the opportunities in 2014 when new financial institutions will get licences,” said Narcoss.

Increasing penetration of smartphones is giving a boost to mobile banking. Banks will not invest their own time and money in keeping pace with these changes. “India continues to be a rapid growth area for us and we are bullish on this market,” Narcoss added.

>rashmi.p@thehindu.co.in

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